2
Obama proposes lower corporate tax rates
President Obama announced a plan that would cut the top corporate tax rate to 28 percent from 35 percent but close many loopholes that let companies pay far less today. Here, he speaks about the payroll tax cut and unemployment insurance extensions passed by Congress alongside Vice President Joe Biden at the White House on Feb. 21, 2012.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
Kai Ryssdal: Item one as we get going today: This is a presidential election year. Item two: Tax reform is a politically difficult thing. Item three: Politically difficult things don't usually get done in presidential election years.
Which leads to conclusion four: The president's proposed changes to the corporate tax structure in this country might better be thought of as the first steps of a negotiation, not as something that will eventually become law as is.
The logic behind it, though, goes something like this: How does this country compete with Europe? With Asia? With anybody, actually -- because it seems cheaper to do business everywhere but here.
The president wants to lower taxes for American companies, especially manufacturers. Our New York bureau chief Heidi Moore walks us through it.
Heidi Moore: Today’s official statements on corporate tax reform sounded to me like the teacher from "Peanuts" putting Peppermint Patty to sleep.
"Peanuts" clip: Wah wah wah wah [snoring sounds] wah wah.
To jolt myself awake, I pretended I’m the CEO of a company, Heidi’s Widgets, and asked some experts whether this new plan would save me money.
Howard Gleckman, at the Tax Policy Center, helped me out.
Howard Gleckman: Let’s say you’re a very successful corporation so you pay the top tax rate of 35 percent, we’re going to cut it to 28 percent.
Score! And since I’m a manufacturer, my new tax rate could be as low as 25 percent.
Gleckman: But we’re going to take away a lot of your tax breaks.
Bummer. And he told me that my taxes will go up on the money I make overseas -- but the government won’t say how much. And here I was hoping they would let me bring that money back to the states so I could hire more people.
Hope Krebs: Didn’t work the last time. I’m dubious.
That’s Hope Krebs. She advises companies for the law firm Duane Morris. I think she’s onto me. In 2004, when Heidi’s Widgets got a tax break for those overseas profits, I didn’t hire anybody. Manufacturers like me always want more.
Moore: Don’t we have tax breaks in favor of manufacturing?
Krebs: Yeah! We’ve got lots of them. Has it made a difference? No.
So I’m paying 25 percent and I’m losing a bunch of tax breaks. How does Heidi’s Widgets stack up next to GE? Howard Gleckman told me not to expect a level playing field -- even at home.
Gleckman: Heidi, you’re never going to compete with General Electric. They have a staff of hundreds of lawyers who make sure they pay taxes in the single digits.
It’s so unfair. But that seems to be something that the tax code can never fix.
In New York, I’m Heidi Moore for Marketplace.
There is an interesting twist on this issue of Foreign taxation for “super person” corporations. Right now they are not required to report or pay tax on their foreign earnings until they expatriate them. Sounds reasonable, as that is kind of like a Territorial tax system the rest of the world has. You pay taxes where you earn them. However, unlike a real territorial system, super persons have to pay tax when they bring the money home. Naturally, these companies try to get special provisions and new exemptions to allow them to bring the money home at more favorable rates. What rationale person would want to pay 35%, right?
However, practically speaking, no company actually pays that rate as due to the tax system complexity, 72,536 pages of tax code, some like GE have entire departments of tax attorneys for the sole purpose of engineering their tax liability to zero. This is not unlike financial engineering, and we know what that got us. Now we have campaign engineering with Super Pacs, and we see that that is getting us. That is the American way. We don't use engineering for building things anymore, it seems, but we are darn good at engineering ways around our laws and regulations. Lobbying works and pays good dividends.
However, if you are a real person, a Citizen of the US, you do not get similar treatment. Your income is taxed world wide no matter where you live, so if you are domiciled in another country, you pay tax to that country as well as tax back to America. It is called Citizenship taxation.
America is unique in the world with its Citizen Tax, as it and Eritrea are the only two countries that tax their Diaspora in this way. However, in our usual hubristic way, we just joined in a UN resolution condemning Eritrea for its Diaspora tax, as apparently only America has that right! The other 191 countries in the world use a logical territorial tax system, as do the 50 states in the Union, but never mind. We are different, we’re exceptional, right? BTW, that was UN resolution 2023.
The negative consequences of this Citizen tax are legend, at least to US Expats living overseas, but most Homeland Americans have no idea that it exists or what its impact is. Neither to Reporters apparently! LOL They and Congress have no concept on how non competitive it makes US citizens as compared to say Chinese or German citizens in the world market place. If you wonder why we have such trade deficits, you might start looking at why it is too expensive to employ Americans to sell our products overseas, but I digress, as that would be a story that takes some effort to get at, and who in the Homeland cares.
Many in Congress think that even the meager provisions like Foreign earned income exclusion designed to help level the playing field should be done away with. Americans overseas must be tax evaders, after all. Tax ‘em! In fact, lets make it more expensive and difficult for US Expats by lumping them together with the Homeland UBS type tax evaders in a 3 year jihad against offshore accounts and foreign tax evasion. By using draconian penalties for failures to file an administrative form called an FBAR, by increasing use of threats, by passing new FATCA regulations to turn all Financial institutions in the world to IRS agents and adding new reporting complexity, (irs form 8938), they have made the life of an US Expat even more difficult. Well played US Congress and IRS. That should drive them underground, or bring them home!
US Citizens are becoming a pariah around the world, to be avoided for business transactions and relations, and banks rather than have them as a client are just closing accounts. So, if you are living overseas, thanks to Congresses myopic tax/FATCA policies, it will become more difficult for you just to have normal banking relations to pay your household bills and children’s education expenses. You know, normal things that you do in the Homeland.
In a strange twist, the Obama administration has decided, apparently, in the name of lowering the Corporate tax rate to add onto these “super persons” some of the wonderful "benefits" of a Citizenship taxation regime. Welcome to our world! They too will have to pay a tax on their offshore earnings! Now, I am not going to cry too much for our “super persons” as they will find a way around it, or lobbying that provision into oblivion. But it is kind of funny that maybe they too should get a passport, as this proposal is just about as backward as you can get. Maybe they too will start denouncing their citizenship as is happening with more and more just normal average middle class Expats around the world. (look up what is happening in Canada) Unintended Consequences abound with each new addition, exclusion or exemption to the never ending novel called the US tax code. It will soon be over 73,000 pages. In fact maybe it already is. Who knows?!
Congress is considering moving to residence-based taxation for corporations, and should absolutely do the same thing for individuals. The United States is the only country in the world (besides renegade Eritrea) that taxes on the basis of citizenship, and the recent FBAR enforcement mess, and the future FATCA legislation that is simply unworkable, have brought into sharp relief the limitations and disastrous unintended consequences of the citizenship taxation system.
